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Average rate of return method of investment appraisal

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Reference no: EM131066017

A business owner has a choice of two investment projects. The estimated life of each project is 5 years.

Project One Project Two

Initial cost 320,000 280,000

Repair and maintenance costs per annum 25,000 15,000

Revenue returns before taking account of repair and maintenance cost

Year 1 30,000 40,000

Year 2 60,000 80,000

Year 3 100,000 80,000

Year 4 100,000 80,000

Year 5 75,000 75,000

Use the average rate of return method of investment appraisal to advise which project is the better investment.

Reference no: EM131066017

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